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You have just been hired as a financial analyst for Lydex Company, a manufacturer of safety helmets. Your boss has asked you to perform a comprehensive analysis of the company’s financial statements, including comparing Lydex’s performance to its major competitors. The company’s financial statements for the last two years are as follows:
lydex company comparative balance sheet this year last year assets current assets: cash $ 950,000 $ 1,190,000 marketable securities 0 300,000 accounts receivable, net 2,660,000 1,760,000 inventory 3,590,000 2,400,000 prepaid expenses 260,000 200,000 total current assets 7,460,000 5,850,000 plant and equipment, net 9,500,000 9,040,000 total assets $ 16,960,000 $ 14,890,000 liabilities and stockholders' equity liabilities: current liabilities $ 4,000,000 $ 2,960,000 note payable, 10% 3,660,000 3,060,000 total liabilities 7,660,000 6,020,000 stockholders' equity: common stock, $70 par value 7,000,000 7,000,0
Retained earnings 2,300,000 1,870,000
Total stockholders' equity 9,300,000 8,870,000
Total liabilities and stockholders' equity $ 16,960,000 $ 14,890,000
Lydex Company
Comparative Income Statement and Reconciliation
This Year Last Year
Sales (all on account) $ 15,850,000 $ 13,480,000
Cost of goods sold 12,680,000 10,110,000
Gross margin 3,170,000 3,370,000
Selling and administrative expenses 1,704,000 1,600,000
Net operating income 1,466,000 1,770,000
Interest expense 366,000 306,000
Net income before taxes 1,100,000 1,464,000
Income taxes (30%) 330,000 439,200
Net income 770,000 1,024,800
Common dividends 340,000 512,400
Net income retained 430,000 512,400
Beginning retained earnings 1,870,000 1,357,600
Ending retained earnings $ 2,300,000 $ 1,870,000
To begin your assignment you gather the following financial data and ratios that are typical of companies in Lydex Company’s industry:
Current ratio 2.4 Acid-test ratio 1.1 Average collection period 40 days
Average sale period 60 days
Return on assets 9.2 %
Debt-to-equity ratio 0.7 Times interest earned ratio 5.8 Price-earnings ratio 10